GST can be reported on either a cash or accrual (non-cash) basis, depending on business turnover and requirements. Small businesses with a turnover under $10 million can generally choose to use the cash basis (reporting when money is received/paid) or accrual basis (reporting when invoices are issued/received). Larger businesses must use the accrual method.
Understanding the Two GST Accounting Methods
Cash accounting means you report GST on your Business Activity Statement (BAS) when you actually receive or make payments. In contrast, under the accruals method, GST is reported when invoices are issued or received, regardless of when the money changes hands.
There are two methods of accounting for GST – cash and accrual. Accounting for GST on a cash basis means you account for GST in the period that you receive the money or make the payment.
Your accounting basis can be: payments basis – you account for GST in the taxable period in which you've made or received a payment (this is the most common for small business) invoice – you account for GST in the taxable period when you've sent or received an invoice (even if the payment hasn't been made)
have to pay. The two methods used for calculating GST is the cash and accrual method. In the cash accounting method, you'll track the actual money that comes in and out of your business. In cash accounting, you don't record the cost of an invoice until you have paid it.
Businesses must maintain accurate records and file GST returns regularly. The method can follow either the accrual basis, where transactions are recorded when they occur, or the cash basis, where transactions are recorded when cash is received or paid.
If your business has an annual turnover greater than $10 million and/or your annual GST turnover is more than $2 million, you must use accrual basis accounting. Most larger businesses, therefore, must use it and it usually better suits their circumstances. Cash and accrual accounting methods for GST differ quite a bit.
How does the GST calculator work? The GST Calculator operates based on a straightforward formula: GST Amount = (Selling Price x GST Rate) / 100. Here, the Selling Price is determined by adding the Cost Price and Profit Amount.
(iii) Unlike accounts payable, accrued expenses are recognised exclusive of the amount of Goods and Services Tax (GST) as GST relating to the transaction is recognised at the earlier of arrival of a tax invoice or payment of cash.
Under GST, all these erstwhile indirect taxes such as excise, VAT, and service tax are subsumed into one account. The same trader Mr X has to then maintain the following accounts (apart from accounts like purchase, sales, stock) for every GST Identification Number (GSTIN) as follows: Input CGST a/c. Output CGST a/c.
GST turnover is your business income (excluding certain sales), not your profit. Say you run an online clothing store. If you sell $80,000 worth of clothes in a year, you'd have to register for GST. This is because your GST turnover is over the $75,000 threshold – even if you only make $40,000 in profit.
Payment of sales tax is on an accrual basis and not on a cash basis.
Step-by-Step Guide to Reconciling GST Accounts
GST calculation can be explained by a simple illustration : If a goods or services is sold at Rs. 1,000 and the GST rate applicable is 18%, then the net price calculated will be = 1,000+ (1,000X(18/100)) = 1,000+180 = Rs. 1,180.
Benefits of cash accounting
You only need to record and pay GST to the ATO when you actually receive the payment from your customers. Unlike the accruals method, you don't make GST payments on invoices that have yet to be paid. Cash accounting is a simple way to account and shows how much money you have on hand.
It is calculated on the selling price of goods or services, which includes the profit margin. The GST payable is calculated by multiplying the taxable value of the supply with the applicable GST rates. Therefore, GST is applicable on the total sales value, which includes the profit margin.
Registering for GST
Basically if your business has a turn over of less than two million dollars the choice is yours. You can register for either method. However, if your business has a turn over that exceeds two million dollars then you must report for GST on an accrual basis.
GST creates temporary cash blocks through ITC delays and rate mismatches. This requires businesses to maintain higher working capital reserves. Companies must plan cash flows around tax payment cycles and refund timelines.
Banks overwhelmingly prefer the accrual basis of accounting for loan applications because it provides a more accurate, complete picture of a business's financial health, showing real profitability by matching revenues and expenses when earned/incurred, not just when cash changes hands. While cash basis is simpler and good for taxes, accrual accounting reveals accounts payable (A/P) and accounts receivable (A/R), giving lenders crucial insight into a company's stability and risk, making it essential for funding and growth.
GST is a broad-based tax of 10% on most goods, services and other items sold or consumed in Australia. To work out the cost of an item including GST, multiply the amount exclusive of GST by 1.1. To work out the GST component, divide the GST inclusive cost by 11.
There are 4 types of GST in India, they are:
The normal method for GST is subtracting the amount you paid on purchases (aka ITCs) from what you collected on your sales. This is the amount you must remit to CRA or if you paid more GST on your purchases than you collected on sales, CRA will send you a refund. Pretty simple except there are many rules you must know.
The cash method is generally easier to use than the accrual method, so when you're starting out, you may want to keep things simple. You want better control over taxes. This method provides latitude near year-end to defer or accelerate income and/or expenses.
Starting September 22, 2025, GST in India will be simplified to primarily two rates: 5% and 18%, with a special 40% rate on luxury and sin goods like tobacco and high-end vehicles. Many essentials, including certain medicines and foods, are now zero-rated, while several items see reduced rates.
It starts from the day you become entitled to the credit, typically the date of the tax invoice or the date the payment is made, depending on your accounting method. After four years, you can no longer amend or include a claim for that GST credit in your Business Activity Statement (BAS).